Do stock rallies seem a little fake these days?
March 11th, 2008 | by
mbhunter |
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Tuesday saw the fourth largest single-day point gain in the Dow Jones Industrial Average — 416.66 points, or 3.55%. Great news, right?
When it’s due to the Federal Reserve lending banks $200 billion (two followed by eleven zeroes) to restore some liquidity in the financial system, I just shake my head. This isn’t the stuff real booms are made of, which come from increasing productivity, increasing earnings per share, increasing capital base. This is instead an attempt to keep the economic engine going by throwing massive amounts of WD-40® in the crank case. It will work for a while, but not as well as the proper lubricant, not for as long, and at much greater expense.
But people bought into the stock markets anyway, in droves.
Any thoughts?
| 2.5 |
8 Responses to “Do stock rallies seem a little fake these days?”
By SingleGuyMoney on Mar 12, 2008 | Reply
Yep, a few years ago if there was a gain like that, I would be excited. Now I’m just happy that my losses are a little less.
By Zulu on Mar 12, 2008 | Reply
Yeah, that one sure seems fake. Hard to get excited when, even after a rally like that, the DJIA is still lower than it was one week prior and down over 1k points on the year.
Seems to me like alot of the rationale for improving the economy lately is based more on smoke and mirrors than on anything with real merit.
By Lily on Mar 12, 2008 | Reply
It’s not “fake.” The market went up. That’s, by definition, a real rally. And I’m not sure I agree with recent Fed actions, but the alternative (no liquidity, which would in short order prevent capital raising and thus economic growth) is pretty crappy, too.
Also, you have to remember that the economy and the stock market are not synonymous. The stock market is driven by a bunch of people in suits who trade on rumors. Whether the stock market goes up or down, on a day-to-day basis it doesn’t reflect the health of the general economy. (This is less true when you look at a longer period of time.) So you’re right if you believe that the rally in the stock market doesn’t signify a turnaround in the economy - but that’s true for most sudden market moves.
The real concern I have is that the Fed essentially traded good debt (Treasuries) for bad debt (non-performing, junk, subprime trash). Guess who’s going to pay for that trade? Hmm …
By Mike on Mar 12, 2008 | Reply
I also took this as a sign that the Fed plans to keep throwing money at the problem until some of it actually sticks. That’s a good thing for stocks in the short term, even though there’s lots of side consequences that will come due in the future.
By Becky@FamilyandFinances on Mar 12, 2008 | Reply
My thought: don’t pay much attention to the stock market, just keep investing regularly for the long term.
I’m currently buying more shares of my mutual fund with my $250/mo than I was last year. I love sales
By Becky@FamilyandFinances on Mar 12, 2008 | Reply
By the way, I agree with you completely that this “fix” is just a band-aid.
By Easy to get Credit cards on Mar 31, 2008 | Reply
As far as I can see the FED has always been in it for themselves. We as the people just need to keep aware of the issues at hand AND clear off all personal debt as fast as possible. The next five years will be bringing further problems economically…..worse than the Depression. America will drop to the knees of the FED.